Features

The Pigment Update

By David Savastano, Ink World Editor | September 2, 2005

Practically everywhere consumers turn to, there is color to catch the eye. Color is an important selling point, especially at the point of purchase, as a look down grocery aisles can attest. Inks provide the colors that we see in packaging and publications, and pigments are the key ingredient. Pigments are also a sizable business: industry executives estimate the U.S. pigment market at $800 million in annual sales. “The use of color has outpaced GNP over the past few years,” said Tom Rogers, president and CEO of Apollo Colors, Inc. “There’s more color being used in advertising. It’s a small industry, and very dynamic.” “Everywhere you look, there’s color,” said Don McBride, vice president of sales and marketing for Heucotech, part of Heubach’s worldwide organization. “Color attracts a consumer’s attention. It catches your eye.” Even as the use of color expands, there are challenges ahead, as pigment manufacturers face increasing costs, foreign competition and eroding margins. Prices have held steady for years, but 2000 may be the year that pigment prices are forced upward. The Pigment Business For pigment manufacturers, 1999 was a strong year in terms of volume. “Our business was quite strong in 1999 – somewhat more so than market estimates,” said W. Rucker Wickline, president of CDR Pigments & Dispersions. “We added market share, especially in flushed color. The addition of six million pounds of dry color capacity in Cincinnati early in 2000 will enable us to take on new business in that market as well.” “Last year was a good year, with a lot of advertising, particularly for the internet,” said Peter Ludwig, senior vice president and COO for Sun Chemical Corporation’s Pigments Division. “We saw good demand, and 2000 has started off well.”

“Business is going pretty well for us,” said Mark Wright, market manager for DayGlo Color Corp. “Fluorescents are cyclical, and we hope to see an upturn soon. We always are looking for innovative, cutting-edge technologies, and our emerging technologies are doing quite nicely, such as our dispersions for water flexo and UV base for UV/EB inks.”

“Things are going very well,” said Ron Oberstar, sales manager for Daicolor-Pope.

“We’re pretty busy, and I think most folks are,” Mr. Rogers said. “It’s about where we expected us to be.”

Customers are looking for low prices and high quality, a combination that leads to challenges and lower margins.

“Customers want the quality of the traditional major manufacturers at the price of the importers, which is very difficult,” said Bill Teto, general manager, specialty chemicals, for Toyo Ink America, Inc. “I think the gap is narrowing.”

“Value can be measured in a number of ways, through color strength, ease of dispersion, cleaner colors, or price,” said Mr. McBride. “We sell on our name, our quality and our service. There are people who have web sites who are looking to make one deal, and then are gone. We seek the mutual satisfaction of our customers and ourselves. If we’re successful, our customers are successful.”

“Customers are looking for value, quality and service,” said Barry Patterson, vice president of marketing and sales for Magruder Color Company. “What makes us unique is that we’re not affiliated with any ink company, and that we have a full range of products in many different forms – flushed, dry, presscake and dispersions. In some way or another, we have something to offer everyone.”

“Most people are approaching us on price,” said Edward da Ponte, manager, technical services at BASF. “You don’t get much discussion about innovative products. The consolidation of the ink industry has changed what pigments are available on the market.”

“Due to the pressures of competition, price has become the preeminent factor in sales,” Mr. Oberstar said. “Customers are focused on price first today. It’s in response to the pressures that ink companies face. The concept of value-added service is lost in a de-escalating price environment.”

Tighter tolerances are another area that ink and pigment manufacturers face.

“Ink manufacturers are putting the onus on the suppliers as the specs are becoming tighter,” said Joe Devoto, sales and marketing manager for Uhlich Color. “That’s being forced down the chain, from the printers requiring tighter specs from ink makers, who in turn seek tighter specs from pigment manufacturers, who then go to intermediate manufacturers. It forces us to get better and better at what we do.”

There are many costs involved in trying to meet these tighter specifications. One such area is equipment. “We’re looking to buy certain equipment to meet these specs. If we aren’t willing to spend money on new equipment, our customers will go to those who are,” Mr. Devoto said.

“To be successful in the future, you need to separate yourself from your competition. You do that by offering the best customer service, technical service, quality and consistency in the market. We’ve put a tremendous amount of effort into these areas and have reaped the benefits,” Mr. Devoto said.

Raw Material CostsHowever, the price of crude oil looms largest in the eyes of all executives in the chemical industry, and pigment manufacturers are no exception. As the price of a barrel of crude oil escalates past $30, pigment makers are watching closely to see what will happen to their own costs.

“We have seen some cost increases due to the relatively high price of oil,” Mr. Ludwig said. “The price of oil has a major influence on the chemical industry, and I think it’s a matter of time before we see prices go up across the board. I can foresee pigment prices going up – in the second half of this year.”

“We have started to see some upward price pressure on certain raw materials,” Mr. Wickline said. “Beta naphthol, which is not only an intermediate itself but a precursor to BON, a major raw material, has started to increase in price. Suppliers say we could be looking at 10 to 15 percent increases on beta naphthol and its derivatives by the third quarter. If that happens, I would expect pigment prices to respond accordingly.”

“When you talk about finished pigments, the price of oil does pinch, particularly in the phthalocynate area,” said Mr. Oberstar.

“The cost of raw materials is going up, but the market continues to dictate what is happening,” Mr. McBride said.

Pigment intermediates are another area where the price of oil may have an impact soon.

“The supply chain for pigment intermediates are still organic-based, and most can be traced back to oil,” said David Dugan, sales manager for Clariant Corporation.

“I haven’t seen any pressure on pigment intermediates yet,” Mr. Rogers said. “Oil was this price two and a half years ago, and then it dropped off dramatically. It’s a commodity.”

“Because a lot of intermediates are oil-based and fuel is going up, I can’t see intermediates doing anything but increasing,” Mr. da Ponte said.

In recent years, attempts to increase pigment prices have failed to take hold, but the higher raw material costs may make increasing prices a fact of life.

“Approximately two years ago, there was a push to raise prices on certain pigments, but the increase failed to stick,” Mr. Devoto said. “There’s overcapacity in the market now.”

“If the price continues to stay high, it will continue to affect earnings and increase pressure on pricing,” said Mr. Dugan. “We certainly do see increasing pressure to make upward adjustments.”

“The pigment industry would welcome even a modest increase to offset some of the increase in costs of a barrel of crude oil, increasing costs of compliance for regulations and the environment, and wages,” Mr. Oberstar said. “These are fundamental costs that need to be attended to.”

R&D Efforts
Research and development is an essential element in any industry, and the pigment industry is no exception. While there are few new pigments being developed outside of the specialty areas such as metallics, improvements in properties are critical for ink manufacturers.

“Actually there really isn’t any new pigment creation going on; that is, we aren’t creating new chromophores,” Mr. Wickline said. “However, customers and their applications play a very important role in the work we do in pigment development and characteristic modification. We are constantly modifying existing pigments to get better rheology, more gloss, more flow, better transfer, better dot structure, cleaner colors, etc.”

“We do respond to some specific customer needs,” Mr. da Ponte said. ‘There isn’t much true R&D in the ink market except for the high-performance pigment, which have improved lightfastness and bleeds.”

“We like to partner with our customers to develop technologies to meet their requirements, whether its niche or general,” said Mr. Oberstar.

Mr. Dugan said that R&D efforts to improve pigments have costs, and customers have to be aware of that aspect.

“I think customers are asking for better value, and for many suppliers, all they can do is cover the price,” Mr. Dugan said. “We look to improve the value of our products through improved characteristics and service. If a company isn’t offering technical services or R&D, it isn’t an even playing field. This all has to be paid for. If customers are unwilling to pay for product development, that’s what will happen. You get what you pay for.”

Competing with Overseas Pigments
The offshore pigments are also a factor in keeping prices down, though U.S. manufacturers say there are tradeoffs for using these products.

“Offshore pigments that are imported to the U.S either through joint ventures or distribution are absolutely having an effect on market price,” Mr. Oberstar said.

“Over the next few years, we see the amount and types of pigments coming in from both India and China growing at a rapid rate,” Mr. Devoto said. “Unless something drastic happens in either the oil market or for some unknown reason the government starts limiting imports, pigment prices will remain flat.”

As such, pigment makers have to find ways to compete by offering better quality and service. For Sun Chemical, overseas pigment competition requires continuous development of low-cost products and strong support programs.

“We have to be smart enough to come up with our own low-cost programs, plus offer service, continuity and consistency of supply,” Mr. Ludwig said. “We have to be able to come in with value-added products to stay ahead. R&D is one area in which we have an advantage. You have to offer better value and better properties.”

“Nearly all pigment imports are in dry color,” Mr. Wickline said. “Up to now, it hasn’t affected us since we have remained sold out over the past couple of years. However, we are in the process of adding six million pounds of dry color capacity so we’ll be in a position to compete with importers for additional business in 2000.

“To date, we have not seen any products that we couldn’t compete with either on price or on quality,” Mr. Wickline said. “While the Chinese have low labor costs going for them, they are labor intensive. We, on the other hand, have worked diligently for the last four years to take labor out of our processes. From 1996 to 1999 our sales grew 25 percent and our head count reduced by 13 percent. Consequently, we think we’ll be very competitive.”

There are still concerns about the quality of the product being shipped in from overseas, though there have been some gradual improvements, according to pigment executives.

“There is, generally speaking, a difference in quality in dry pigments shipped from a Third World country,” Mr. Rogers said. “Are they getting better? Absolutely.”

“Over the past five years, there’s been an incremental increase in quality, but not to the extent that they match the quality of domestic pigments,” Mr. Oberstar added.

International Efforts
The advantages of producing pigments overseas are numerous, beginning with costs. The price of labor is much lower throughout most of Asia. In addition, Asia is seen as a growth market, which offers pigment manufacturers an opportunity to reach out to new areas.

In an effort to try to compete in the Asian market while enjoying the lower costs of production, a number of major pigment manufacturers have built operations in Asia. Heubach, Toyo, Clariant, BASF and others have plants producing a wide range of pigments throughout Asia. These companies are applying their own quality standards to their Asian operations.

Mr. McBride said that Heubach’s facility in India, which has been producing pigments since 1995, meets the company’s quality standards and has earned ISO 9002 certification. “Asia is a growth market,” Mr. McBride said. “Our plant in India is a modern, automated production facility that supplies quality pigments around the world.”

Toyo Ink has two major pigment production facilities in China which supply pigments to its ink operations there. At present, Toyo Ink is a leading printing ink manufacturer in China, with its Tianjin Toyo Ink Co., Ltd. joint venture.

“The majority of the pigments that we produce in China remain there,” Mr. Teto said. “The target is to find global uniformity. We want to meet a uniform standard.”

“A lot of our new products are due to our purchase of a controlling share in Songwon Color in Korea, as well as our phthalo blues,” said Mr. Dugan.

In addition to the Songwon Color plant, Clariant has facilities in China and India. “One of the keys to any of our locations is that the facilities have to be up to Clariant’s standards in terms of quality, environment and worker safety,” Mr. Dugan said. “We look at the Pacific Rim as a growing market place, and it’s going to need production in or around China, Japan and the rest of the region.”

“We’re seeing a great influx of pigments from the Asian market, which is certainly influencing the pricing structure in the U.S.,” said Mr. da Ponte. “We do have a plant in Shanghai, which we will solely own by the first quarter of this year.

“Pigment prices have been reducing due to the pressure from the Asian markets,” Mr. da Ponte continued. “I have seen a great fluctuation in quality from the Asian market; some have been excellent, and some have a long way to go. BASF has pigments coming from Shanghai, and it has maintained the quality of traditional BASF pigments. BASF’s emphasis has been on our Shanghai plant, which is modernized and built from the ground up. We are in the midst of adding plant and capacity.”

Metallic Pigments
One area of strong growth in the pigment market is in metallic pigments.

“Metallics are going very well,” said Oliver Crowhurst, director of business development, graphic arts, at Eckart America. “Metallics are used to enhance appearance and make products stand out. The more brilliant the product, the more it enhances the appearance of the product. It gives an inherent quality and feel to it.”

The market for metallic pigments and inks continues to grow. “In 1999, we saw a strong year for metallics, particularly in silver inks,” said Andrew Rink, president of MD-Both Industries. “Metallics have significant ‘stopping power’ and give an impression of high quality to the packaged item. It provides a very decorative effect.”

“The golds, silvers and pearlescents continue to be important, because they catch the eye of consumers,” said Richard Horsell, vice president of Edgmont Metallic Pigment. “They remain strong in printing inks, since suppliers need to have a marketing edge.”

Since metallic pigments offer challenges to ink manufacturers, more ink companies are purchasing finished inks from companies that specialize in metallics. Depending on the requirements of the market, ink manufacturers may choose to purchase finished inks from a metallic ink specialist. For example, Mr. Rink noted that sheetfed inks can come in any varieties of Pantone colors, which would be difficult for a non-metallic ink specialist to develop and keep in stock.

“We see a definite trend in ink manufacturers purchasing press ready metallic inks,” Mr. Rink said. “A lot of the bigger organizations are making the decision to buy specialty inks rather than produce them, since manufacturing such inks would absorb a disproportionate amount of their R&D resources, requires stocking of expensive raw materials and finished product for what is a rather mercurial demand pattern. We have all the specialized ink knowledge that you develop over the years. It’s not worthwhile for an ink maker to keep inventory when they can order from us and have it by the next day.”

There are plenty of opportunities for metallic inks and pigments to gain further prominence. “Water-based metallics are a big growth area, as is UV,” Mr. Rink said.

“We are improving our performance, as metallic pigments are difficult to stabilize in water or with radiation,” Mr. Crowhurst said. “Increasingly, our customers want to buy our products as inks and dispersions.”

“It’s a very competitive market, and you have to bring out new products,” Mr. Horsell said. “There has been a lot of R&D work done on bronze and aluminum pigments, where new pigments and forms of pigments are in the process of being introduced.”

Throughout the pigment industry, improvements are being made in production processes, and metallics are no exception. “We’ve put in a state-of-the-art milling system, which will allow us to introduce a whole series of new pigment products,” Mr. Crowhurst said. “It’s very important to continually improve the quality of all our products. You can’t make good metallic inks with substandard metallic pigments.”

Conclusion
The cost of crude oil will be an important factor in the price of pigments over time. As the price of oil goes up, essential components will also increase in price, which may necessitate a price increase in pigments.

Should that indeed occur, ink manufacturers may be facing their own pricing pressures and decisions in the near future.